The basis for numerous long-term interest rates
Ten-year bond yields influence everything from mortgage rates to corporate debt. They’re now the benchmark for long-term US interest rates. Some of you might remember when the 30-year bond was the benchmark, but that changed in the 1990s. When investors want to know what’s going on in the bond market, in essence they want to know where the ten-year bond is trading.
Note that short-term rates are still important, particularly LIBOR (the London Interbank Offered Rates), which is the base rate for almost all short-term rates.
Bond yields skyrocket on strong economic data
After closing out the prior week at 2.41%, the ten-year bond yield decreased 2 basis points to close at 2.39%. The bond market, as tracked by the iShares 20+ Year Treasury Bond ETF (TLT), sold off heavily with the JOLTs jobs report and strong retail sales number. The ten-year yield approached 2.5% before falling back below 2.4% on the producer price index.
Ever since European bond yields bottomed out about a month and a half ago, worldwide bond yields have been marching inexorably higher. Last week, Greece missed a payment to the IMF (International Monetary Fund), and the situation with the European Union remains tense.
US economic data were largely on the stronger side—especially the jobs report, which showed wage inflation beginning to make a reappearance. The unemployment rate rose, but that was due to an increase in the labor force participation rate, which ticked up off its lows to 62.9%. The big number was the 280,000 jobs created last month.
Construction spending rose as well, although it doesn’t really show much activity in residential real estate construction.